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Pre IPO Stocks

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IPO stocks have become highly popular, especially since the Silicon Valley has started to produce some of the best and most profitable startups as compared to anywhere on Earth. However, it can be a tantalizing prospect to buy a pre IPO stock. Think about Peter Theil and Sheryl Sandberg who had invested in Facebook before it even got listed on the NASDAQ in 2012. Or consider Bobby Murphy and Evan Spiegel who went public with Snapchat in 2017 and ended up raising $30 Billion.

Finding companies which are best in place of initial public offering could be something that could turn you into an overnight millionaire. It is risky and difficult to do so. It might not turn out to be successful or glamorous as you once thought it would be. Here is just what one needs to know about pre-IPO stocks.

What is a pre-IPO stock?

A pre-IPO stock provides investors with the opportunity to list on the stock market. Their goal is to buy in while the stock is privately-held and relatively small. Once, the shares get listed, the investors would sell the shares of the business in a large stock exchange such as the NASDAQ and end up making a fortune. The return on investment on pre-IPO stock is huge as long as you do your homework well.

Now, it can be hard to tell if a stock is pre-IPO until it gets listed and by that time it would have been too late already. There a two characteristics which can be found in such a company, namely a great story and the potential to grow exponentially. The following questions should be asked if you want to determine whether a business could someday actually go public.
• Would there be a demand for this type of investment?
• Could the company have thousands or even millions of customers?
• Is it possible for the business to become a billion dollar corporation?
• Does the company have a story which would make investors want to buy into it?
• Is the industry in which the business operates growing significantly?
• Could the company become an international corporation?
• Does the business offer a unique solution which could turn it into a Unicorn?
A few of the websites which you should check out to see if there are any shares being sold in the companies before they trade publicly. Examples of these websites include Seed Ups, Our Crowd, Equidate, Share Post, and Equity Zen.

Pre-IPO Stock Misconceptions and Risks
There are certain misconceptions that many aren’t aware of when it comes to pre-IPO stock. And, plenty of risks can also be found when we look at investing into it.
No. 1: Any Corporation Can Be Pre-IPO
Any company can be made into a pre-IPO stock with the help of a good promoter. He could easily entice investors with the prospect of investing in the stock before anyone does. Generally, the promoter isn’t wrong either as it would be to your advantage. Now, even the local corner store could become pre-IPO. However, that’s all there would be to it.
It is important for one to be cautious about companies that market themselves as pre-IPO. They could even be a scam.
No. 2: Listing on the Stock Market is Quite Easy
It has become quite easy to list a company on the stock market due to the lax laws in place. A small fee is just what would be needed in different parts of the world to allow for the public listing of the business. However, these markets are considered to be less liquid as compared to FTSE, ASX, TSX and NYSE.
Simply going public doesn’t mean that it would cash out. One needs to have a market for people to buy into their stock.
No. 3: IPOs Aren’t Necessarily Lucrative
Not all IPOs turn out to be a huge success, even if they end up listing on a huge market. No matter where the stock is listed, if there is no demand for it, people would just not buy the stock.
No 4: Until the IPO Shares Are Illiquid
Sometimes, it can be impossible to sell shares in a privately-held firm. One should be prepared to make a long term investment when investing in pre-IPO stock as the company might not go public as planned before and you might have your capital tied up for an extended period of time. It might sound unfair but it is the bitter truth about investing in pre-IPO stock.
No. 5: Regulatory Concerns
There are laws which are in place that govern if and how pre-IPO stocks are sold. One needs to have received a private placement memorandum or an offering in order to invest in it. A subscription agreement would also need to be signed. Or else, you would need to rely on certain exemptions from the securities act or be an accredited investor.
The most common violations of the securities act, is illegally raising money from investors. Any company that gets caught doing so would end up facing huge fines and the value of the investment would be threatened. Make sure that the company complies with the relevant laws before buying. Early issuers might be unaware of the law but it is no excuse.
No. 6: Unknown Characteristics of Shares
If you invest in a private business later on, the prior shareholders would have certain rights which you won’t. They could be entitled to receiving the earnings from IPO before you for example. Their votes could potentially carry more weight too. Yours shares might not get listed, while yours do. Ensure that you know what those prior to you were offered in order to know if you are at the back of the line or not.
No 7: Some Companies Only Go Public In Order to Survive
Sometimes, companies only go public as they have no other option to raise much needed cash. Therefore, in order to avoid a situation where your interests aren’t as protected as you thought they were, go through all of the financial statements to get an idea of the company’s performance and ask them about their reasons behind going public.

Commodities are Volatile Assets

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What is the difference between an asset and a commodity?

Answer : All commodities are assets, but not all assets are commodities because assets are wide term.

Volatility and high returns go hand in hand. Assets are a property or something that are of value. There are different types of intangible and tangible things that are assets. However, in the trading and investing world, there are different classes of assets. The volatility of an asset is a huge concern for those that trade or invest capital. The prime variance of the asset is volatility over time. The higher the volatility, the wider the price ranges in terms of long term period. There are assets which are more volatile as compared to others and what makes a market attractive or unattractive is the variance of the market as different investors have a different risk profile.
One of the most important factors, for the consideration of which asset to trade or invest in, is the variance of the asset.

Just about everyone has heard of commodities. They are a unique type of asset, which provide returns that are entirely independent from bond and stock returns. Adding various types of commodity will help one diversify their portfolio of bonds and stocks which help lower the risk of the portfolio significantly and increase returns. Commodities are a rare type of asset which can even hedge from inflation due to their impact on the price of goods.

So what’re Commodities?

In order to understand commodities, one needs to understand what they entail. They can be thought of as raw materials which are used for the creation of consumer goods such as aluminum, silver, gold, natural gas, oil, wheat and cattle. They are available in just about every single industry which is why they are referred to as commodities. One can also find soft commodities which are stored for a shorter period of time such as coffee, cocoa, cotton or sugar.
commodities
From the beginning of time, the commodity market has evolved greatly when there used to be a time that farmers would store apples and sell in the market if the prices went up. Then, during the 19th century, the demand grew for standardized contracts to ensure that the commodity prices could be fixed or agreed upon. Therefore, the development began of the commodity futures exchange. These days, options and futures contracts are easily traded on different exchanges in various parts of the glove and deal in a huge variety of energy, metal and agricultural products as well as for soft commodities. The price risk is offloaded to the end users due to the standardized contracts and it helps the commodities producers significantly.
Ever since the last end of the 20th century, the commodities have undergone rapid change as an asset class. The commodity futures indexes were developed as well as the benchmark of the indices with the investment vehicles. Now, investors have the opportunity to select from a range of vehicles in order to invest in futures market of commodities, from notes to mutual funds or exchange-traded funds, which cover the vast spectrum from broad based commodity exposures to single based, and even sector based commodity exposures.

Why Should One Invest in Commodities?

The commodity market is huge and it offers some of the best risk-free returns due to its nature. It is used as a hedging tool in times where the inflation rate is unpredictable and increasing by the day. There are three main benefits for investors if they invest in commodities, namely return potential, diversification and inflation protection. These three are vital for a powerful portfolio.

As commodities are just like real assets, they would reach differently to the changes in economics as compared to bonds and stocks, or financial assets as they are referred to. For example, we know that commodities tend to profit from the rise in inflation, and are only one of the rare asset classes that does. Furthermore, the price of the services and goods increases as their demand increases, and so will the price of the commodities, almost in unison to the changes in demand. Since, the price of commodity rises as the inflation accelerates, it may be best for one to invest in commodities to hedge from inflation.
On the other hand, bonds and stocks perform better when inflation is slowing or stable. When the rate of inflation rises fast, it leads to the lowering of future cash flows value that are paid by bonds and stocks as the future cash would only be able to buy less services and goods as compared to today.

Commodities and Volatility

Active traders are attracted to those assets which have a much higher degree of volatility as compared to investors. More short-term and speculative trading activity is attracted when the price of the asset is highly volatile. Therefore, the markets that experience high price variance are a trader’s paradise as they yield opportunity for the immediate future and on the other hand, they can be an investor’s nightmare as they seek earnings that are steady.
There are different classes to choose from when it comes to the more popular markets that attract different participants. Commodities, currencies, bonds and stocks are the four most popular classes which provide a different range of volatility.

The Market

It is due to these reasons that the commodity index of Goldman Sachs, Credit Suisse and Bloomberg has been independent largely from bond and stock returns in the past, and only correlated positively to inflation.
If we look at the period from 1970 to 2015, the annual returns had a low correlation with the U.S. equities on the Bloomberg Commodity Index and there was a correlation that was close to zero with the global bonds. They were however, positively correlated to the US CPI.
Even though the correlation of equities to commodities experienced a pickup after the global financial crisis, it was only the result of the decrease in total demand which impacted many of the asset classes and resulted in a higher correlation between the two. However, since the period, commodities are responding once again to supply factors. It is due to the geopolitical instability, weather that is impacting the price of grains and even natural gas and has influenced mining or crude oil strikes which impacts metals. The factors don’t affect bond or stock market returns more importantly to a similar degree and the correlation between other asset classes and commodities has come down.
The low correlation of commodities to bonds and stocks shows what might be the main advantage of broad exposure and that is diversification. For a diversified portfolio, the movement of the asset classes would be in sync with one another, this leads to the reduction in the overall portfolio’s volatility. The consistency of the returns would be improved over time due to the lower volatility reducing the portfolio risk. It is impossible for losses to occur even with diversification.

Let we compare commodities, equities, bonds and forex volatility :

Here are little test for last 30 days. Let we take ADX indicator to measure volatility. Let we pick 10 most volatile assets in last 30 days.
Here are my small test :

Equity Volatility
Shares in companies are included in the equity asset class and so are indices which reflect the overall volatility in the stock market or other sectors within each of the equity class. Trading or investing in the equity market is the most popular option among investors.
Major indices such as the S & P 500 or the Dow Jones Industrial Average normally experience a similar variance over time unlike most stocks which do not experience such a degree of volatility. Stock prices do make significant moves in certain periods. Examples in which stocks were dramatically lowered include the recent global financial crisis in 2008, the stock market crash of 1987 and 1929.
The US is the most stable economy in the world and the US stocks are definitely much less volatile as compared to their counterparts around the globe. The market has ranged from the highs of 27.23 % and lows of 5.35 % since the financial crisis of 2008.
Bond Volatility
A bond is a debt instrument which provides a coupon or yield to the holder of the instrument. Governments around the globe offer bonds just like companies. Bonds help finance businesses and countries by borrowing from the public. The different periods along the yield curve are looked at in the bond market by traders and investors who are active in the bond market. Short-term bonds are much more valuable as compared to long-terms ones which investors only look at for a steady flow of income.
It is the Federal Reserve or the Central Bank which controls the short end of the yield curve in the United States. The interest rate is the Fed Fund rate which credit unions and banks would lend to reserve balances on overnight basis. The Fed Funds rate is dictated and controlled by the US Federal Reserve. The minimum interest rate is the discount rate which is set by the Fed Reserve in the United States for lending to different banks. Market forces influence the prices of debt instruments and bonds, that have further maturities, and the Central Bank on the other hand controls the Federal Funds as well as the Discount rate.
The long-term and medium rates can be influenced by the short-term rates, but there would be divergences that would happen. Short or long positions can be taken by bond traders depending on how they view interest rates. A short position has a view that the rates would move higher, while a long bond position would bet that the rates would decline. Most of the bond traders position themselves just along the long and shore one maturity and the yield curve to take spread out and take benefit of pricing anomalies. A consistent and safe yield is what investors in the bond market look for in their investment nest eggs. Since the wake of the financial crisis in 2008, volatility has moved higher.

Currency Volatility
Since the United States is the most stable and richest economy in the world, the dollar is the reserve currency of the world. As compared to most other asset classes, currency volatility is normally lower due to the government controls on money supply and printing into the monetary system. To a large extent, governments control money supply. The stability of a government is what the volatility of currencies is dependent upon. Therefore, the Pakistani Rupee has a higher volatility as compared to the dollar for example. Other foreign exchange instruments can also be less likely to be reserve currencies as they are less liquid. Normally, the dollar index has shown a reading of below the 10 % level.

Commodities Volatility
Coming to commodity volatility, it is the t asset class which tends to be highly volatile. Looking at just the volatility of crude oil, since 1983, it has ranged from over 90 % to 12.63 %. A similar metric is seen for natural gas. If we look at the natural gas variance on a shorter term basis, the range has been over 100% in many occasions which shows just how volatile the commodity market can be for certain commodities.
The volatility in soybeans according to the quarterly historical data has ranged from 10 % to over 75 % since the 1970s. There has been a similar trend for corn and even the sugar futures market as well as coffee futures. Silver has experienced the range from 10 % to more than 100 %. On the other hand, gold is a hybrid commodity since central banks across the globe hold the gold as a reserve asset. The yellow metal has a dual role which is of a financial asset and a metal commodity.
The hybrid nature of the gold prices has been reflected since the middle of the 70s wherein the quarterly volatility has been from 4 % to more than 40 %. This shows us that commodity volatility is high over time due to various reasons and some commodities and more volatile as compared to others.

5 Reasons behind Commodities Being More Volatile

So where is secret ? Let we figure out why commodities are volatile ?

Commodities attract investor interest through the years due to the bull market periods. There has been an increase in choice for participants in the market over the years because of the emergence of new market vehicles which trade on ETN and ETF products as well as traditional equity exchanges. Before their introduction, investors could only invest in commodities that did not have a futures account and could be done through the ownership of the physical commodity.
When traders look at the short-term advantages of commodities, they are keen on investing in commodities. Here are the five core reasons for commodities being more volatile than other asset classes.
1. Liquidity
There is much less liquidity that is offered by commodities on the futures exchanges. Even though gold and oil can be the most liquidly traded commodities, they can also be highly volatile due to various reasons.
2. Mother Nature
The weather is determined by Mother Nature and so are natural disasters which occur from time to time on our planet. A spike in the price of red metal would cause if there is an earthquake in Chile, as is the largest producer of copper in the world. The prices of soybeans and corn would skyrocket due to a drought in the US. While, the recent cold winters have led to an increase in the demand for natural gas which has led to the energy commodity of the futures contracts skyrocketing.
3. Demand and Supply
At the end of the day, commodity prices are greatly influenced by demand and supply. Demand can be considered constant, while the production of commodities varies due to various reasons such as the climate, soil, and other factors. The demand is ubiquitous and the supply changing from time to time, has led to the asset become highly volatile.
4. Geopolitics
It is almost impossible to leave out geopolitics from commodity variance. When countries go to war or place an embargo on a country that is a major producer, it leads to the prices of the commodity skyrocketing. An example of this can be the sanctions on Russia, Iran and the Iraq-Kuwait war. Wars impact production and affect or even close off logistical routes which make it impossible or highly costly to transport the goods.
5. Leverage
Finally, leverage is something that needs to be looked at. Futures do provide a high level of leverage as compared to others, and it impacts the volatility of the commodities.

How Can One Invest in Commodities?

It might have been challenging to capture all of the advantages of commodity exposure in the past. Investors have been provided with another option due to investment vehicles benchmarking with commodity futures indexes and gaining exposure. Commodity exposure helps manage against a diversified index. Asset allocation has been done since the beginning of time which shows that it is beneficial.

Are there any Risks?
Although, diversified commodity exposure does offer investors with various advantages, there are risks to commodities investment. During cyclical downturns, commodities might not perform well and if the industrial and consumer demand slows, there are other things which could impact it such as politics, natural conditions and the market.

One more thing.We see in this text that commodities are Volatile Assets. A lot of people think that volatility is bad thing, something as huge risk. No risk and volatility are different things and volatility can be huge advantage in trading. Just try!

What is Leveraged Buyout – LBO

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Leveraged Buyout – LBO
Definition
When you borrow a significant amount of money in order to complete the acquisition of another company, then this will be termed as a leveraged buyout. Now, since the amount of loans taken for acquiring the company is pretty high, so to pay them off, the assets of the acquired company are put to use. They are often kept as a collateral for the loans to the creditors. Sometimes, the acquiring company also uses its own assets to keep as a collateral for the loans. Now, the main reason behind this buyout is to make sure that when a company is being acquired, the acquiring company is not committing a lot of capital.

Historical aspects regarding Leveraged Buyout

The infamous history of leveraged buyouts suggests that they hadn’t been much successful in the past. Most importantly, when the 1980s are kept into account, there were various much important buyouts that happened and led to the eventual bankruptcy of acquired companies. Mainly, this was because of the pretty high leverage ratio that amounted to almost 100%. The interest payments were also so large that the operating cash flows of the company just couldn’t make it to meet the exceedingly high amounts and thus, they eventually got bankrupted.
One of the largest LBOs on record was in 2006 when Kohlberg Kravis Roberts & Co. (KKR), Merrill Lynch and Bain &Co. acquired the Hospital Corporation of America (HCA). The three companies had to pay a whopping amount of $33 billion in order to acquire HCA.

What are the reasons behind LBOs?

When a company is taking so much loan just to acquire another company, it raises questions and puts the acquiring company’s finances at great risk. So, one does wonder the reasons behind such a buyout. Well, there are three important reasons as to why companies come to this point.

1. First reason is when the company wants to take over a public company and make it private
2. When someone is trying to sell a portion of his existing business for its spin-off.
3. The third reason might be the transfer of any private property, or the case where a small change is to be made in the ownership of a specific business.
However, in all the cases, there is one common requirement that the acquired entity must be a profitable and growing venture. So that, spending all the large amount and acquiring all the loans are worth it.

Break down of LBOs
Usually, there is a ratio of 10% equity to 90% debt in an LBO. Due to the excessive ratio, usually the bonds issued in this buyout are referred to as the junk bonds instead of the investment grade. Moreover, a lot of people are of the view that the tactic of LBOs is highly predatory and ruthless because the target company never actually sanctions it. Moreover, it is pretty much ironic that the assets responsible for a company’s success are actually being used against the same company by the predator company as a collateral.

The process of LBO
The leveraged buyouts often contain many complexities and hence they take some time for completion. For instance, consider the example of JAB holding company. It is a private firm which makes investments in healthcare companies, coffee and luxury goods. In May 2016, JAB holding company started the leveraged buyout of Krispy Kreme Doughnuts, Inc. The acquired company came at a whopping price of $1.5 billion, out of which there was a leveraged loan of $350 million along with a revolving credit facility of $150 million through the Barclays investment bank.
However, the Krispy Kreme Doughnut Inc. already had a debt on its balance sheet which was also needed to be sold. Barclays made it more attractive by adding an additional 0.5% interest rate to it. Thus, the LBO was made quite intricate and the deal was almost cancelled. Nevertheless, on July 12, 2016, they went through with the deal and closed it.

Attractive aspects of LBO

An LBO generally represents a win-win situation for banks as well as financial sponsors, thus they are quite attractive. In case of financial sponsor, he can employ the leverage and thus enhance the rate of returns on his equity. The banks can also make it different from the corporate lending and thus attain some significantly high margins by supporting the finances of LBOs. This is because the banks will be charging a much higher interest. Moreover, the banks can obtain security or collateral too as a proof or surety that they will get repaid.
How much amount can the banks provide for an LBO
As mentioned, the LBO requires a lot of debt and this depends on how much amount the banks are actually willing to provide for supporting an LBO. The amount varies and is dependent on several factors that are mentioned as follows:
• Overall economic environment
• The quality of the company that is being acquired i.e. whether the operating cash flows of the company are stable, its history, the prospects of growth and the hard assets etc.
• The experience and history of the financial sponsor.
• How much equity is being offered by the financial sponsor.
Characteristics of leveraged buyouts
The leveraged buyouts greatly differ in many aspects. However, some characteristics are there that hold true in almost every LBO mentioned as follows:
• Strong management team – The chief executives will have worked with each other and by rolling over their shares in the LBO deal, they might have some vested interests.
• Relatively lesser existing debt – The private equity firm will add up more debt in the capital structure of the company which is to be repaid over time. Thus, this results in a lesser effective purchasing price. If the company already has acquired a huge debt balance, then the deal is very tough to be closed.
• Relatively lesser fixed costs – the fixed costs are to be repaid even if the revenues of private equity firms decline, thus the fixed costs pose risk for the private equity firms.
• Stability in cash flows – the acquired company in the LBO must have a stable operating cash flow.

Futures trading and instaforex

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From the several markets making up the financial market, one is the futures market wherein the traders are allowed to utilize their capitals with more efficiently, receive better profits for all the successful deals and also enjoy reduced risk chances of loosing.
The futures contract is basically an agreement wherein the two parties agree on settling a deal by a specific time in future. The asset is sold by one party while it’s bought by the other and the contract in itself does not require any part to pay.
There are a number of benefits of trading through future contracts. Firstly, trader is not needed to pay the contract price in full, only a little security is deposited which is generally 5-10% of the contract’s value. This value can be found at online stock exchange sites where the futures are traded. Therefore like in stock trading, leverage is created without having to pay for using it.
Secondly, the futures contracts involve low transaction prices. It allows the use of various strategies for advancing the achievable profits and hedges the risks.

Two approaches exist in futures contracts:
1. Closing the opened positions till the futures contract expires
2. Deliverance of an asset prior to expiry of the futures contract
Futures contracts have several kinds:
• Commodity futures wherein the buyer must buy while seller must sell the asset in the contract at the fixed date
• Financial future wherein a cash amount equal to the price difference between the actual and contract prices is settled to be paid in case the asset is not delivered till the expiry time of the contract. These kinds of contracts serve to hedge against risks.
The abbreviation of futures contract consists of several parts. The first symbols point to the item (gold, oil, Dow index); next symbols indicate the month and year of futures delivery.

Futures trading
Trading in futures contracts is slightly different from the Forex trading. Although the basic and technical analysis, the charts as well as indicators are the same in both of them, yet the futures market has a few distinctive features in contrast to Forex market. In Forex market, positions can remain open for months at a stretch or as much as years. On the other hand in futures market the contracts have a fixed closing time. It they are not closed by that fixed time then they are forcibly closed.
Futures contracts abbreviations comprise of a few parts. One of the symbols indicates the item (Dow index, oil, gold) while the other depicts the month as well as year of the futures delivery.
Future contracts accepted designations for months
F (January), G (February), H (March), J (April), K (May), M (June), N (July), Q (August), U (September), V (October), X (November), Z (December).
Furthermore when trading the futures contracts the trader pays the spread (the asked price and the bid price difference) and the commission. This commission amount is mentioned in the future contracts specification.
Future trading is done over futures exchanges and the renowned futures markets include, CME, NYMEX or NMX, LIFFE, CBOT or CBT, LME and IPE.
InstaForex futures provides its customers the facility of trading the CFD for futures. Currently more than twenty of similar trading instruments are available for our customers. Further details on the futures contracts can be acquired from the company’s official online site.

Government bonds rates by Moody’s and S&P and Fitch

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Bonds and stocks are all securities the difference being stockholders or owners of a company while bondholders are deemed to be lenders to a company.Bonds play a critical role in balancing portfolios and general economies. Investors are thus encouraged to take on bonds and stocks concurrently. Returns on bonds may be lower compared to stocks but they are safer protected ways of investing in securities. Interest rate of bonds can be quantified by the level of its duration.

See List of government bonds rates by Moody’s and S&P and Fitch : Government bonds